Semester 2: Lecture 4: Approaches to Pricing with a focus on Markets.

Question 1

3 cost management strategies Accountant’s Perspective:

Answer 1

• Lifecycle costing
• Target Costing
• Kaizen

Question 2

Challenges when comparing cost based pricing methods:

Answer 2

Cost estimation - Difficulty in accurately predicting fixed and variable costs.

Price Rigidity - Businesses may struggle to adjust prices dynamically.

Market disconnection - Ignores competitor pricing and customers willingness to pay.

Question 3

Brief overview of LP, TC and K

Answer 3

LP - Adjusts prices over a product’s entire life cycle, considers demand, competition and costs.

TC - Determines a cost structure, based on market price constraints.

Kaizen - focuses on small continuous improvement, incremental cost reductions.

Question 4

What is life cycle pricing?

Answer 4

Adjust prices throughout a product’s life cycle to remain competitive and maximise revenue.

Price changes due to market demand, production costs and competition.

R & D
Introduction
Growth
Maturity
Decline

Question 5

What is Target Costing?

Answer 5

• Is a cost management approach influenced by market pricing.

Combines 3 elements: cost, competitors and customers.

Involves analysing the market, customer needs and customer demands to define the target price.

Question 6

What is Kaizen?

Answer 6

• Focuses on continuous improvement in operations.
• Implement efficiency change which will reduce costs.

e.g. moving the location of a trolley by 1 meter in order to improve efficiency and the speed at which operative work is done.

Question 7

4 factors which are included in the Marketer’s Perspective:

Answer 7

Price Perception - (£9.99 vs £10)
Perception of Quality
Differentiation (MM)
Consumer Ethics

Question 8

4 different Pricing strategies:

Answer 8

• Market skimming pricing
• Premium pricing
• Value pricing
• Perfect competition

Question 9

Market Skimming Pricing?

Answer 9

High price, gradually lower this overtime. Works best for new technology products.

Targets early adopters who are willing to pay a high price.

A form of price discrimination.

Question 10

Premium Pricing?

Answer 10

• Charge a higher price than market average, is justified due to the higher quality and greater added value.

Question 11

Value Pricing?

Answer 11

Selling a product which is at a similar quality to competitors but you offer it for a lower price.

Undercut competition.

Question 12

Perfect Competition?

Answer 12

• Many buyers and sellers (infinite)
• Homogenous goods - firms are price takers from the market.
• No barriers to entry/exit.
• Same product with same price
• Perfect information.